The American Spectator

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THE RETURNS ON INVESTMENT in the Chilean system have been phenomenal so far, averaging 10 percent annually. Rather than focus on this, the reporter found Dagoberto Saez, a cherry-picked sob story who is retiring after 24 years in the new system with a monthly pension of $315 per month. Rohter reported that Saez's colleagues, who remained in the old system, get over twice what Saez receives.

Though Rother picked Mr. Saez as an example of all that is wrong with the Chilean system, he should have thought about his choice more carefully. Having contributed for 24 years, Saez now receives one-third of his pre-retirement income from his personal account.

That is a replacement rate of 33 percent of Saez's last wage, not his average career wage, to which benefits in the U.S. system are tied. Had he been able to contribute to a personal account over his entire working career, he very likely would have far surpassed his colleagues who remained in the old system. It's worth noting that the large pensions his colleagues are on an unsustainable track -- that’s why Chile switched to the personal accounts system in the first place.

Rohter's reportage does raise legitimate concerns about the Chilean economy. But those issues were both exaggerated and unfairly laid at the feet of the nation's system of personal accounts.

To start, the "billions" of dollars that Rohter said had been paid out by the government to fund retirements were billions of Chilean dollars, not U.S. greenbacks. According to Estelle James, former lead economist of the world bank, the annual cost should be stated in millions of dollars for American readers.

These debts should not be charged against the personal accounts system. The payouts from the government to old folks who didn't take advantage of the personal accounts are, in fact, a direct subsidy from taxpayers. As the results become more fully known, it is very likely that the personal accounts will make this problem less severe, by reducing overall welfare spending as Chileans are allowed to build inheritable wealth that they can pass on to their families.

Those who have remained in the old system have indeed extracted $60 billion Chilean dollars from public coffers since 1981. But as they pass on and are replaced by a new generation of workers who have opted for their own personal accounts, the public subsidy should fall sharply.

It's hard to see why anyone would call Chile's personal accounts system a failure. Removing barriers to legal employment and fostering a competitive environment among personal accounts managers could certainly help the system operate more effectively, but they are not problems with the system itself.

With rates of return that are more than double what was originally projected and Chile's economy booming, it's a shame that the United States didn't follow suit when it reformed Social Security in 1983.

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